In this study, we argue that share price reaction to a ®rm's capital expenditure decisions depends critically on the market's assessment of the quality of its investment opportunities. We postulate that announcements of increases (decreases) in capital expenditures positively (negatively)...

This paper employs contingent claims analysis to decompose the firm's systematic risk into the risk as- sociated with its assets in place and the risk arising from future growth opportunities. 5 Contingent claims analysis is well-suited to such decomposition, since a growth opportunity can be...